Paper 5 Investment-linked Long Term Insurance Quiz 36

The core purpose of the Financial Needs Analysis (FNA) is to comprehensively assess a client’s financial situation to determine their insurance needs and affordability. This includes gathering detailed personal particulars, understanding their financial outgoings and assets, identifying liabilities, and considering family commitments. Based on this holistic view, the intermediary can then recommend suitable insurance products. The Risk Profile Questionnaire (RPQ) specifically focuses on investment objectives, horizon, risk tolerance, and financial circumstances to ensure the suitability of the investment component of an ILAS product. While both are crucial pre-sale documents, the FNA’s scope is broader, encompassing the entire financial picture and protection needs, which directly informs the affordability and suitability of premiums. The other options are either too narrow in scope (RPQ focuses on investment risk, not overall financial needs and affordability), or describe other required documents (IFS/AD focuses on product features and declarations, not needs assessment), or misrepresent the primary function of the FNA.

The scenario describes a Hong Kong-incorporated Financial Institution (FI) with an overseas branch that cannot comply with Hong Kong’s customer due diligence (CDD) requirements due to local laws. According to the provided guidelines, when an overseas branch or subsidiary is unable to comply with requirements similar to Parts 2 and 3 of Schedule 2 of the AMLO due to local legal restrictions, the FI has two primary obligations. Firstly, it must inform its relevant regulator (RA) of this non-compliance. Secondly, it must implement additional measures to effectively mitigate the money laundering (ML) and terrorist financing (TF) risks that arise from this inability to adhere to the standard CDD procedures. This ensures that while local laws are respected, the overall risk exposure of the FI is managed. The other options are incorrect because they either suggest reporting to an unspecified authority, ignoring the issue if local laws prevent compliance, or assuming that compliance with local laws automatically satisfies Hong Kong’s AML/CFT framework without further risk mitigation.

The CIS Internet Guidance Note, issued by the SFC in April 2013, aims to clarify regulatory requirements for advertising and offering Collective Investment Schemes (CIS) online. It is designed to be read alongside the SFC’s 1999 Guidance Note on Internet Regulation and the Insurance Authority’s GL8 on Internet Use for Insurance Activities. The guidance covers various aspects, including general regulatory approach, advertisements, offering of CIS, analytical tools, and electronic communication with investors. While the AMLO and related guidelines are crucial for financial institutions, the specific focus of the CIS Internet Guidance Note is on the online promotion and sale of CIS, not the broader anti-money laundering framework itself, although there can be overlaps in practice. Therefore, the primary purpose of the CIS Internet Guidance Note is to provide clarity on the regulatory framework for online CIS activities.

The question tests the understanding of the SFC’s role and disclaimers regarding offering documents for investment-linked schemes, as mandated by IIQE Paper 5 regulations. The SFC explicitly states it does not endorse the accuracy or completeness of offering documents and disclaims liability for any losses arising from reliance on them. Furthermore, SFC authorization does not constitute a recommendation or guarantee of the scheme’s performance or suitability for all investors. Option (a) accurately reflects this disclaimer by stating the SFC’s non-endorsement and non-liability. Option (b) is incorrect because while the SFC does not guarantee performance, it does have a role in authorizing schemes, which implies a level of scrutiny. Option (c) is incorrect as the SFC’s disclaimer is broad and covers all losses arising from reliance on the document, not just those related to market value adjustments. Option (d) is incorrect because the SFC’s authorization statement is a specific disclosure requirement, not a general statement about the document’s contents.

This question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Insurance Authority (IA) and the relevant legislation. The Insurance Companies Ordinance (Cap. 41) is the primary legislation that governs the conduct of insurance business in Hong Kong, including the sale and distribution of investment-linked products. The IA, established under the Insurance Companies Ordinance, is responsible for enforcing these regulations. Option (b) is incorrect because while the Securities and Futures Commission (SFC) regulates investment products, the IA has primary oversight for insurance products, even those with investment components. Option (c) is incorrect as the Mandatory Provident Fund Schemes Authority (MPFA) regulates the MPF system, which is distinct from general investment-linked insurance. Option (d) is incorrect because the Hong Kong Monetary Authority (HKMA) is responsible for banking supervision and monetary policy, not the regulation of insurance products.

The core principle tested here is the relationship between investment time horizon and risk tolerance, as outlined in the IIQE Paper 5 syllabus. Investors with shorter time horizons (up to 1 year) generally have lower risk tolerance because they have less time to recover from potential short-term market downturns. Liquidating assets prematurely due to unexpected needs can lead to realizing losses. Conversely, investors with longer time horizons (over 5 years) can typically afford to take on more risk, as they have more time to benefit from potential market recoveries and growth, and short-term fluctuations are less impactful on their overall long-term objectives. The question presents a scenario where an individual needs funds within a year, directly linking to a short investment time horizon and thus necessitating a lower-risk investment strategy to avoid potential capital loss at an inopportune moment.

This question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Securities and Futures Commission (SFC) and the Insurance Authority (IA). Investment-linked insurance policies are dual-regulated products. The SFC regulates the investment component, ensuring compliance with securities laws regarding advice, sales, and product suitability. The IA regulates the insurance component, focusing on policy terms, solvency, and consumer protection related to insurance. Therefore, a financial advisor selling such a product must be licensed by both the SFC for investment advice and the IA for insurance advice, and the product itself must be authorized by both bodies. Option (b) is incorrect because while the IA is crucial for the insurance aspect, it doesn’t oversee the investment advice component. Option (c) is incorrect as the SFC’s mandate is primarily for securities and futures, not the entirety of insurance regulation. Option (d) is incorrect because while the Hong Kong Monetary Authority (HKMA) regulates banks, it does not directly regulate the sale of investment-linked insurance products by financial advisors.

The United Nations (Anti-Terrorism Measures) Ordinance (UNATMO) prohibits making property or financial services available to terrorists or their associates without a license. It also criminalizes collecting property or soliciting services for such individuals. The maximum penalty for contravention is 14 years imprisonment and an unspecified fine. Financial Institutions (FIs) are obligated to screen customers and transactions against designated lists, including those published in the Gazette and under US Executive Order 13224. Failure to do so, or processing transactions for designated parties, constitutes an offense. The Weapons of Mass Destruction (Control of Provision of Services) Ordinance (WMD(CPS)O) further prohibits providing services connected to WMD proliferation if there are reasonable grounds for suspicion. Reporting suspicious transactions to the Joint Financial Intelligence Unit (JFIU) is mandatory, even if the suspicion is not directly linked to terrorism but appears unusual for other reasons. FIs must maintain up-to-date databases and provide adequate training to staff, including insurance agents, on identifying and reporting suspicious activities related to both money laundering (ML) and terrorist financing (TF). The prohibition against ‘tipping off’ is crucial, meaning FIs must not inform customers or others about disclosures made to the authorities.

The question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Securities and Futures Commission (SFC) and the Insurance Authority (IA). Investment-linked insurance policies involve both insurance and investment components. Therefore, their promotion and sale are subject to oversight from both the IA, which regulates insurance, and the SFC, which regulates securities and investment products. The Insurance Companies Ordinance (Cap. 41) and the Securities and Futures Ordinance (Cap. 571) are the primary legislative frameworks. A financial institution offering such products must be licensed or authorized by both bodies to ensure compliance with all relevant regulations concerning both the insurance and investment aspects. This dual regulation is crucial for consumer protection, ensuring that both the insurance and investment risks are adequately disclosed and managed, and that the sales practices meet the standards set by both regulatory authorities. Options B, C, and D are incorrect because they suggest oversight by only one regulatory body, which would be insufficient for a product with dual insurance and investment characteristics. For instance, relying solely on the IA would neglect the investment regulations, and relying solely on the SFC would overlook insurance-specific consumer protections.

This question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Securities and Futures Commission (SFC) and the Insurance Authority (IA). Investment-linked insurance policies are dual-regulated products. The SFC regulates the investment component, ensuring compliance with securities laws regarding advice, marketing, and product suitability. The IA regulates the insurance component, focusing on solvency, policyholder protection, and the insurance contract itself. Therefore, both authorities have oversight, but their specific areas of jurisdiction differ. Option (b) is incorrect because while the IA is the primary regulator for insurance, the SFC’s role in regulating the investment aspect is crucial for ILAS. Option (c) is incorrect as the IA’s mandate extends beyond just solvency to policyholder protection and market conduct related to insurance. Option (d) is incorrect because the SFC’s oversight is specifically on the investment products and advice, not the entire insurance contract’s actuarial aspects.

Investment-linked long term insurance policies are characterized by transparency in charges, with all fees and costs clearly disclosed to the policyholder. Premiums, after deducting costs of insurance and expenses, are invested in funds chosen by the policyholder, which are separate from the insurer’s general assets. This structure means the policy’s value directly fluctuates with the performance of these underlying investment funds. While this offers potential for investment gains, it also means the policyholder bears the investment risk. A key feature is the availability of various investment fund options, catering to different risk appetites and strategies. However, due to fixed charges, very small premium amounts may not be cost-effective as the deductions can significantly reduce the amount available for investment. The question tests the understanding of these core characteristics, particularly the transparency of charges and the direct link between policy value and investment performance, which distinguishes them from traditional policies.

The question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Securities and Futures Commission (SFC) and the Insurance Authority (IA). Investment-linked insurance policies involve both insurance and investment components. The SFC regulates the investment aspect, ensuring that the investment products offered are compliant with securities laws and that intermediaries are licensed to deal in securities. The IA regulates the insurance aspect, overseeing the solvency, conduct of insurers, and the insurance contract itself. Therefore, for an investment-linked insurance product to be legally offered and sold, it must satisfy the regulatory requirements of both the SFC (for the investment component) and the IA (for the insurance component). Failure to comply with either authority’s regulations would render the product’s offering and sale unlawful.

The question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Securities and Futures Commission (SFC) and the Insurance Authority (IA). Investment-linked insurance policies are dual-regulated products. The SFC regulates the investment component, ensuring compliance with securities laws and investor protection measures related to investment advice and product suitability. The IA regulates the insurance component, overseeing solvency, policyholder protection, and the conduct of insurance intermediaries. Therefore, both authorities have oversight, but their specific jurisdictions differ. Option (b) is incorrect because while the IA is the primary regulator for insurance, the SFC’s role in regulating the investment aspect is crucial. Option (c) is incorrect as the IA’s mandate extends beyond just solvency to include conduct and policyholder protection related to the insurance contract. Option (d) is incorrect because the SFC’s authority is specifically tied to the investment nature of the product, not the entire insurance contract’s operational aspects.

This question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Insurance Authority (IA) and the Securities and Futures Commission (SFC) in oversight. The Insurance Companies Ordinance (Cap. 41) and the Securities and Futures Ordinance (Cap. 571) are the foundational legislation. Investment-linked insurance products are dual-regulated because they combine insurance and investment components. The IA is primarily responsible for the insurance aspects, including solvency, policyholder protection, and the conduct of insurance intermediaries. The SFC is responsible for the investment aspects, including the regulation of investment products, fund managers, and the conduct of securities and futures intermediaries. Therefore, both bodies have a vested interest and regulatory authority over different facets of these products and their distribution. Option (b) is incorrect because while the IA is the primary regulator for insurance, it does not solely oversee the investment component. Option (c) is incorrect as the SFC’s mandate extends beyond just the investment fund aspect to the conduct of those distributing investment products. Option (d) is incorrect because the Financial Secretary’s role is more at a policy and legislative level, not direct day-to-day regulation of specific product types.

This question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Insurance Authority (IA) and the relevant legislation. The Insurance Companies Ordinance (Cap. 41) is the primary legislation that governs the conduct of insurance business in Hong Kong, including the authorization and regulation of insurers and intermediaries. The IA, established under this ordinance, is responsible for enforcing its provisions and ensuring the stability and integrity of the insurance market. Option (b) is incorrect because while the Securities and Futures Commission (SFC) regulates the securities and futures markets, its jurisdiction over investment-linked products is limited to the investment component and is often coordinated with the IA. The IA has the primary regulatory oversight for the insurance aspects. Option (c) is incorrect as the Mandatory Provident Fund Schemes Authority (MPFSA) regulates the MPF system, which is distinct from general investment-linked insurance products, although some MPF products may have insurance features. Option (d) is incorrect because the Hong Kong Monetary Authority (HKMA) is the central banking institution responsible for monetary policy, banking supervision, and payment systems, and does not have direct regulatory authority over insurance products.

The question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Securities and Futures Commission (SFC) and the Insurance Authority (IA). Investment-linked insurance policies involve both insurance and investment components. Therefore, their sale and distribution are subject to oversight from both the IA, which regulates insurance, and the SFC, which regulates securities and investment products. This dual regulation ensures that consumers are protected regarding both the insurance aspects (e.g., policy terms, claims) and the investment aspects (e.g., investment risks, suitability of underlying funds). The Insurance Companies Ordinance (Cap. 41) primarily governs insurance business, while the Securities and Futures Ordinance (Cap. 571) governs the securities and futures markets. A licensed representative selling such products must be authorized by both the IA (as an insurance agent/broker) and the SFC (as a licensed representative for regulated activities related to investment products). The other options are incorrect because they either limit the regulatory scope to only one authority or suggest a regulatory body that does not have primary jurisdiction over investment-linked products in Hong Kong.

The scenario describes a client who has opted for a ‘premium holiday’ on their Investment-Linked Assurance Scheme (ILAS) policy. A premium holiday allows temporary cessation of premium payments, but crucially, all associated fees and charges continue to be deducted from the policy’s value. This continuous deduction, especially during periods of potentially lower investment returns, can significantly deplete the policy value. If the policy value falls below the amount required to cover these ongoing fees and charges, the policy is at risk of lapsing, meaning it will cease to be in force. This directly relates to the ‘Premium Holiday Risk’ as outlined in the syllabus, which warns of the potential for reduced policy value and affected bonuses, leading to a lapse if not managed carefully. The other options represent different types of risks: Liquidity risk concerns the ability to convert an investment to cash quickly; Political/Regulatory risk relates to adverse changes in government policies; and Reinvestment risk pertains to earning lower rates when reinvesting proceeds.

The Guidance Note on Product Recommendation for Long Term Insurance Business (Including Linked Long Term Insurance) (CIB-GN(12)) emphasizes the importance of a structured and documented process for recommending investment-linked long-term insurance products. This process must begin with a thorough understanding of the client’s financial situation, needs, and objectives, which forms the basis for suitability assessment. The note mandates that recommendations should be based on this assessment and that the rationale for the recommendation must be clearly documented. This documentation serves as evidence of the advisor’s due diligence and adherence to regulatory expectations. While client education is crucial, it is a component of the overall recommendation process rather than the primary driver of the recommendation itself. Similarly, the focus on product features and benefits is secondary to ensuring suitability for the client. The note does not mandate a specific minimum investment amount, as suitability is determined by individual circumstances, not a fixed threshold.

The Insurance Companies Ordinance (Cap. 41) mandates that insurers must maintain adequate solvency margins to protect policyholders. This involves ensuring that the insurer’s assets exceed its liabilities by a specified amount, which is calculated based on the nature and volume of its business. The solvency margin is a key indicator of an insurer’s financial health and its ability to meet its obligations. Option (b) is incorrect because while a business plan is crucial for operations, it doesn’t directly define the minimum financial buffer required by law. Option (c) is incorrect as the Insurance Authority’s approval of policy terms is a separate regulatory function and not the primary determinant of the solvency margin. Option (d) is incorrect because while a fidelity guarantee fund exists to protect policyholders in case of an insurer’s insolvency, it is a secondary protection mechanism and not the definition of the solvency margin itself.

The United Nations (Anti-Terrorism Measures) Ordinance (UNATMO) prohibits making property or financial services available to terrorists or their associates without a license. It also criminalizes collecting property or soliciting services for such individuals. The maximum penalty for contravention is severe, reflecting the seriousness of these offenses. Financial Institutions (FIs) are obligated to screen customers and transactions against designated lists, including those published in the Gazette and by overseas authorities like the US Executive Order 13224. Failure to do so, or processing transactions with designated parties, constitutes an offense. The Weapons of Mass Destruction (Control of Provision of Services) Ordinance (WMD(CPS)O) adds another layer of prohibition, criminalizing the provision of services connected to WMD proliferation if there are reasonable grounds for suspicion. Therefore, an FI must have robust systems to identify and report suspicious activities related to both money laundering and terrorist financing, including maintaining up-to-date databases and conducting comprehensive screening of customers and payment instructions. Reporting suspicious transactions to the Joint Financial Intelligence Unit (JFIU) is mandatory, even if the connection to terrorism is not immediately evident, as further investigation might reveal such links. The concept of ‘tipping off’ is strictly prohibited, meaning FIs must not inform customers or other involved parties about disclosures made to the authorities. Understanding customer behavior and normal transaction patterns is crucial for identifying unusual activities that may indicate ML/TF.

The Insurance Companies Ordinance (Cap. 41) and its subsequent amendments, particularly those related to investment-linked insurance, mandate that insurers must maintain a clear segregation between policyholder assets and the insurer’s own assets. This is crucial for protecting policyholders’ interests, especially in the event of the insurer’s insolvency. Policyholder assets in investment-linked policies are typically held in unit trusts or other investment vehicles, and their value fluctuates with market performance. The insurer acts as a trustee or custodian for these assets, and any gains or losses directly impact the policy value, not the insurer’s general revenue. The regulatory framework aims to ensure transparency and prevent the commingling of funds, thereby safeguarding the investment performance and capital of policyholders. Option B is incorrect because while insurers do bear operational costs, these are typically covered by management fees and charges deducted from policy values, not directly from segregated policyholder investment returns before they are credited. Option C is incorrect as the insurer’s own profitability is a separate concern from the performance of the underlying investment funds for policyholders; the insurer’s financial health is important for solvency, but it doesn’t dictate the direct crediting of investment gains to policy values. Option D is incorrect because while regulatory capital requirements are vital for solvency, they are distinct from the direct flow of investment returns to policyholder accounts, which is governed by the segregation principle.

The core principle of advising on investment-linked policies, as outlined in the syllabus, is to align recommendations with the client’s unique circumstances. This includes their investment needs, objectives, risk tolerance, and any specific constraints they may have. An insurance intermediary’s duty is to clearly communicate the policy’s features and benefits. Understanding the various investment types, their associated risks, and potential returns is crucial for providing relevant and accurate information. Therefore, a comprehensive client information questionnaire is essential for gathering the necessary data to make appropriate recommendations. This data typically includes details like nationality (for tax implications), number of dependents, cash flow, investment goals, preferences, existing assets, and current insurance coverage. The other options are too narrow or misinterpret the primary objective. While understanding investment types is important, it’s a component of the broader client assessment. The linked exchange rate system’s impact on Hong Kong’s interest rates is a macroeconomic factor, not the primary driver for individual client portfolio advice. The US stock market’s global influence is also a broader economic consideration, not the direct basis for tailoring a specific client’s portfolio.

The question tests the understanding of how international capital flows can impact a domestic economy, specifically Hong Kong, as described in the provided text. The text highlights that while globalization allows for filling savings gaps and portfolio diversification, it also introduces risks. The 2008 credit crunch in the US is cited as an example where problems in one market (US banks’ balance sheets) led to a halt in cross-border lending to emerging markets and asset value degradation for overseas investors. This directly illustrates how a crisis in a major economy like the US can transmit negative effects to other markets, including Hong Kong, through reduced investment and asset value declines. Option (a) accurately reflects this interconnectedness and the potential for contagion. Option (b) is incorrect because while international capital flows do facilitate diversification, the question asks about the *impact* of these flows, and the text emphasizes the risks associated with them. Option (c) is too narrow; while the US economy has a direct impact due to the currency peg, the question is about the broader implications of international capital flows and financial market integration, not solely the currency link. Option (d) is incorrect because the text explicitly states that international capital flow is a ‘double-edged sword’ and can cause instability, contradicting the idea that it solely leads to more efficient resource allocation without significant risk.

The core difference between open-end and closed-end funds lies in their capital structure and how investors buy and sell shares. Open-end funds continuously issue and redeem shares based on Net Asset Value (NAV), meaning their capitalization fluctuates. In contrast, closed-end funds issue a fixed number of shares during an initial offering. Subsequent trading of these shares occurs on secondary markets, and their prices can trade at a premium or discount to the NAV, influenced by market sentiment rather than directly by the fund’s underlying asset value. Unit trusts, while similar in concept to open-end funds in that they offer redeemable units, are structured under a trust deed with a trustee holding the assets. The question specifically asks about the mechanism of share trading and price determination after the initial launch, which is the defining characteristic differentiating open-end and closed-end funds.

The Shanghai-Hong Kong Stock Connect, launched on November 17, 2014, established a direct channel for mutual stock market access between Mainland China and Hong Kong. Initially, Northbound trading (investors trading A-shares from Hong Kong) was open to all Hong Kong and overseas investors. However, Southbound trading (investors trading Hong Kong stocks from the Mainland) was initially restricted to Mainland institutional investors and eligible individual investors. The relaxation of these restrictions, allowing fund managers to launch funds investing in Hong Kong stocks via Stock Connect without QDII status, occurred on March 27, 2015. The Mutual Recognition of Funds (MRF) initiative, allowing eligible Mainland and Hong Kong funds to be offered in each other’s markets, commenced on July 1, 2015. Therefore, the earliest date among the options that reflects a significant expansion of access related to the Stock Connect program, specifically concerning fund management, is March 27, 2015.

This question tests the understanding of the core features of flexible premium variable life insurance, often referred to as Universal Life or Variable Universal Life policies, which are prevalent in Hong Kong. The key characteristic is the flexibility offered to policyholders regarding premium payments and sum assured. Option (a) accurately reflects this by highlighting the ability to adjust premium amounts, take premium holidays, and modify the sum assured, provided the policy value can support these changes and insurability requirements are met. Option (b) is incorrect because while investment-linked policies generally offer flexibility, the specific features mentioned (premium adjustment, premium holidays, sum assured modification) are defining characteristics of the flexible premium variable life insurance type, not all investment-linked policies. Option (c) is incorrect as it misrepresents the nature of premium holidays; they are permissible only if the policy’s value is sufficient to cover ongoing charges, not simply at the policyholder’s discretion without regard to the fund’s status. Option (d) is incorrect because while increasing the sum assured often requires evidence of insurability, this is a specific condition for that particular adjustment, not a general limitation on all flexible features of the policy.

The question tests the understanding of the regulatory framework governing investment-linked insurance products in Hong Kong, specifically the role of the Securities and Futures Commission (SFC) and the Insurance Authority (IA). Investment-linked insurance policies are dual-regulated products. The SFC regulates the investment component, ensuring compliance with securities laws, while the IA regulates the insurance component, ensuring solvency and consumer protection in insurance matters. Therefore, both authorities have oversight. Option (b) is incorrect because while the IA is primarily responsible for insurance, the investment aspect falls under SFC purview. Option (c) is incorrect as the IA’s mandate is broader than just solvency, encompassing consumer protection and market conduct for insurance. Option (d) is incorrect because the SFC’s role is specifically related to the investment products and services, not the general insurance operations.

The question tests the understanding of different types of investment funds, specifically focusing on their objectives and investment strategies as defined in the IIQE Paper 5 syllabus. A ‘Growth Fund’ is characterized by its objective of maximizing capital appreciation, often by investing in ‘growth stocks,’ which are typically companies expected to grow at an above-average rate. This contrasts with funds focused on income generation (Income Fund), capital preservation (Guaranteed Fund), or mirroring an index (Index Fund). The scenario describes a policyholder seeking aggressive capital growth, aligning perfectly with the definition of a Growth Fund.

The question tests the understanding of disclosure requirements for fees and charges in Investment-Linked Assurance Schemes (ILAS) as per relevant regulations. Option (a) correctly identifies that all fees and charges payable by a scheme participant, including those on subscription, redemption, and switching, must be disclosed. This aligns with the principle of transparency in financial products. Option (b) is incorrect because while fees payable by the scheme or investment option are important, the primary focus for participant understanding is on the direct costs they incur. Option (c) is partially correct as disclosure of changes and notice periods is required, but it omits the crucial aspect of disclosing the *level* of all fees. Option (d) is incorrect because it focuses only on the fees payable by the scheme itself, not the direct charges borne by the participant, which is a key component of the disclosure requirements.

This question tests the understanding of the primary and secondary debt markets, specifically focusing on the characteristics of the over-the-counter (OTC) market. The primary market is where new securities are issued, while the secondary market is for trading existing securities. The OTC market is a decentralized network of brokers and dealers where trade specifications are negotiated, making it less standardized than an exchange. Exchange Fund Notes (EFNs) are government-issued debt securities in Hong Kong. While EFNs can be listed on the Stock Exchange of Hong Kong, their trading outside of this listing typically occurs in the OTC market. Therefore, the statement that EFNs are predominantly traded on the OTC market after their initial issuance is accurate.